The Nikkei gained 1.3 percent to 10,620.87, climbing back above the 10,600 level after hitting a three-week closing low on Wednesday. The Nikkei is down 2.68 percent so far this week, on track to snap a 10-week winning streak that was its longest string of weekly gains since 1987.

The market started with a soft tone on Thursday, weighed down by Japanese suppliers to Apple Inc that fell on disappointing iPhone sales figures. But most reversed their losses after data showed that growth in China's factory sector hit a two-year high in January.

The China HSBC flash purchasing managers' index (PMI) rose to 51.9 in January, the highest since January 2011 and above the 50-point level that shows accelerating growth in the sector from the previous month.

"China helped, but basically three days of losses has created a nice dip-buying opportunity. It's very easy to get in there today," said Masato Futoi, head of cash equity trading at Tokai Tokyo Securities.

"The underlying tone is still bullish, so even bad news about Apple or whatever doesn't hit stocks too hard."

Apple said it had shipped 47.8 million iPhones in the December quarter, below the roughly 50 million predicted by Wall Street analysts, sending its shares skidding 10 percent in extended trading as investors cut their exposure to the stock.

EARNINGS IN FOCUS

Quarterly earnings figures are beginning to trickle in, with Japan's earnings reporting season moving into higher gear next week.

"It is widely expected that Oct-Dec results will be bad," said Yoshiyuki Kondo, an analyst at Daiwa Securities. "But the outlook is good for the year ending in March and next year."

Many exporters could end up exceeding their latest forecasts for the year to March, which were based on conservative foreign exchange rate assumptions, analysts said.

"Some companies have assumptions that are 10 yen higher to the dollar than current dollar-yen levels, so their earnings prospects are good for the foreseeable future," Kondo said.

On Thursday, the dollar rose 0.7 percent against the yen to 89.21 yen, pulling away from a one-week low of 88.06 yen hit the previous day.

Yaskawa Electric Corp <6506.T> fell as much as 8.8 percent to a one-month low before ending down 4.1 percent at 793 yen after the company reported a 39 percent drop in operating profit in the nine months to December, hurt by weak demand for servo motors in China and Europe.

Toshiba Corp <6502.T> gained 4.1 percent after it and General Electric Co said they will enter a global strategic alliance to develop and sell fossil-fuel power equipment and consider a joint venture in the business.

Many analysts remain bullish on the Japanese market, including those at Goldman Sachs, who said in a report published on Thursday that the Topix index could rise as high as 1,270, or 43 percent above its current level, if the yen weakened to 100-110 against the dollar.